Bloomberg: Souring stadium bond deal could squeeze area taxpayers
Bloomberg dropped an ominous story about Houston today. Here's an excerpt from the report by Darrell Preston, Edward Klump and Aaron Kuriloff:
Harris County-Houston Sports Authority, which built the Texas city's 71,500-seat National Football League stadium, may need to refinance $1 billion in debt and pay as much as $142 million ahead of schedule on bonds and interest-rate swaps.
The agency, operator of Reliant Stadium for the NFL's Texans, must pay $117 million over the next five years after JPMorgan Chase & Co. demanded accelerated retirement of variable-rate bonds due in November 2030, said J. Kent Friedman, the authority chairman. UBS AG may also get $25 million to unwind a swap designed to offset rising interest rates. The extra costs will push higher annual debt service by $20 million to at least $83.7 million in 2011 from $62.3 million this year.
"This is like suddenly having to pay a 30-year mortgage in five years," Friedman, a Houston-based partner in the law firm of Kelly, Hart & Hallman, said in a phone interview.
Even though pols continue to promise that taxpayers won't ever be on the hook for any shortfalls, that is starting to sound like real money to us!
One month ago, the Chronicle's Bradley Olson warned of the possibility of this outcome:
JP Morgan's obligation to provide liquidity - essentially act as a temporary holder of the bonds - expires soon. At that point, the 30-year bonds will be converted to a loan that must be paid off in five years, requiring the sports authority to pay $12 million every six months. Emmett and Mayor Bill White were unable to persuade JP Morgan to hold off on requiring payment for a year.
The magnitude of that payment would trigger an obscure provision of the financing arrangement, requiring the county to pay $2 million every six months from parking fees collected at Reliant Stadium. The debt service on the bonds currently is paid from revenues generated by the hotel occupancy tax, motor vehicle rental fees, the Houston Livestock Show and Rodeo, the Houston Texans and other Reliant complex events.
Edwin Harrison, the county's director of financial services, said the county would not use property tax revenues to make the $2 million payments, but he acknowledged the possibility that property taxes may have to be used to cover the $4 million yearly budget gap.
Taxpayers won't be on the hook... well, they kinda will be, but not really. *wink* Got it?
So far as we can tell, the Chronicle hasn't followed up today on its original story.
There is a very nice profile of Gene Locke in today's newspaper, however, describing him as "a consummate deal-maker, who has had a hand in just about every headline-grabbing step taken by local government the past decade: Three new sports stadiums, annexation of Kingwood, light rail, Houston Independent School District and Harris County redistricting, Houston Community College System expansion."
Rah rah rah, three cheers for the consummate deal-maker!
Sorry, the Chron's selection of the "cheerleader voice" for their series of mayoral profiles got us overly excited.
Anyway, questions have already been raised about consummate deal-maker Gene Locke's ties to the Sports Authority (and to METRO). Maybe it's time for him to start answering some of those questions. Because as mayor, Locke would be in a much stronger position to consummate deals that may just turn out badly for the City of Houston.